Traditional Greeting Cards Struggle to Remain Relevant
By Dale Buss
If there’s been any time for Americans to express sentiments, the national crisis known as the Covid-19 pandemic has created a watershed moment unlike any seen for generations. There are all the condolences to communicate to survivors of the more than 100,000 who’ve died so far from the coronavirus; attaboys to shower on the front-line health-care workers and delivery drivers and others who’ve kept lives and the economy going for the duration; utterances of greater affections that have been achieved among family members and friends brought closer during the stay-at-home orders; and more.
The leaders of the greeting-card business recognized this. “The world needs connection and care now more than ever,” Mark Perry, CEO of industry giant Hallmark, wrote in April in a memo to employees that was obtained by the Wall Street Journal. “People need the ability to reach out – on purpose – to let others know they’re thinking about them. We can help. Never lose sight of the fact that what we do matters.”
But it apparently doesn’t matter enough. Any tide of sentiment-sharing among crisis-plagued Americans hasn’t been enough to reverse trends in the greeting-card industry that have plagued its major players for decades. Pandemic-inspired purchases, even those made electronically, haven’t been enough to revive sales for Hallmark, American Greetings and the many independent outfits that design and write formal messages for acknowledging occasions and expressing sentiments on paper and online. In fact, the effects of the spread of the coronavirus and the economic lockdowns by politicians have pretty much cratered the greeting-card business just like many other industries.
Hallmark, for example, which is the fourth-largest private employer in its hometown of Kansas City, experienced “rapid and steep declines” in U.S. retail sales stemming from the respiratory disease and uncertainties about when conditions would improve, Perry said in the note to employees. By the middle of the month, Hallmark had cut pay for its corporate workers, furloughed “non-business-critical” employees, and temporarily closed all manufacturing and distribution facilities and company-owned stores.
Meanwhile, No. 2 player American Greetings laid off employees across departments at its headquarters in Westlake, Ohio – including eliminating some positions in a voluntary early-retirement program – because of “changes in the retail marketplace,” according to a company statement.
Perry added in his note to Hallmark employees, “We don’t know when or how this massive disruption to our business will end. While we are working hard to resume operations where we can, each day there is a new set of challenges putting downward pressure on our business.”
The “challenges” and “downward pressure” on the industry began decades earlier, when the greeting-card business was among the first sectors of traditional retailing to manifest transformative new dynamics being introduced by the rise of giant bricks-and-mortar retailers such as Walmart and by the takeoff of e-commerce.
Hallmark and American Greetings were happy to get the broader distribution afforded by Walmart, Target and other discount superstores to add to traditional drug stores and brand-dedicated card stores, but capitalizing on the huge new retailing platforms eroded their cushy profit margins. Meanwhile, new digital “greeting-card” formats were undermining paper cards that had always defined the business.
“Greeting-card companies used to be highly profitable,” said Brad VanAuken, chief of BrandForward, based in Honeoye Falls, N.Y., and a former executive of Hallmark. “It was better than printing money, we said, the margins were so high. They negotiated three- to five-year contracts with store chains, owned the space in the stores, put up the fixtures and serviced the fixtures. They also had very sophisticated algorithms for which cards were selling where, according to demographics, and how to refill the spaces. All of this created high barriers to entry to startups.”
But big-box retailers “began to extract more and more [financial] concessions from greeting-card companies because they were able to,” VanAuken recalled. Even dollar stores, the biggest enemy of margins in any CPG business, took on a significant role in the greeting-card category.
Expanding greeting-card distribution beyond drug stores and its own chain of stores also hurt sales and margins at Hallmark’s licensed eponymous outlets. The company countered by consolidating the licensed stores under the management of the best operators and by giving a Gold Crown designation to them, but the ranks of these independently owned stores have dwindled to about 2,000 lately.
Meanwhile, though Hallmark actually had experimented with digital greetings in the 1990s – VanAuken was among the authors of the early software – its moves proved to be premature. “It was way ahead of its time,” he said. “There was no market for it back then.”
But over the subsequent many years, VanAuken said, various startups began popularizing online greetings and expanding the traditional “card” format, forcing legacy players Hallmark and American Greetings to play catchup even though, technologically, they had been in the vanguard of this development. “Now you’ve got really good platforms like Evite, and entertaining brands like JibJab, and everyone else, doing greetings online,” VanAuken said.
Startups have continued to add to the printed-card industry over the decades. Hallmark and American Greetings have responded in part by rolling out their own, higher-priced lines of specialty cards. But some of the newbies, such as Blue Mountain Arts, an alternative brand that became popular in the 1970s, exist today as strong digital players.
As they have transformed so many industries, millennial consumers are another factor in the troubles of greeting cards. Following what VanAuken called the example of the baby-boomer generation, whose members drastically curtailed Christmas-card writing compared with their parents’ generation, millennials and Generation Z disfavor paper cards and use digital means to express feelings that used to take Americans to the greeting-card aisle. But they’re not even bothering with the formality of looking up a digital platform.
“They’ll send a text, ‘Sorry for your loss,’ and that’s how things get done,” Alan Horvitz, owner of a Hallmark store in Orleans, Mass., that closed early this year, told the Journal. “You can’t sell a horse and buggy when cars are moving off the line.”
All of this has proved an existential threat to the traditional players, with overall sales of printed greeting cards falling by 13 percent in 2019 to an estimated $4.5 billion, per market-research company IbisWorld. In February, Clayton, Dubilier and Rice, a New York-based private-equity company, acquired 60 percent of American Greetings, while the remaining 40-percent share was retained by the Weiss family, descendants of Jacob Sapirstein, who founded the company in 1906.
Before Covid-19, Hallmark was trying to counter the trends by bulking up its own online offerings, focusing on its own digital cards, overhauling its app aimed at making it easier to buy and send personalized paper cards, opening new outlets in locations such as hospitals and hardware stores, and experimenting with new approaches for its company-owned bricks-and-mortar stores, which number in the hundreds.
It also was reasonable to hope that Covid-19 and its aftermath might provide some sort of respite – or even spark – to Hallmark and the rest of the greeting-card industry. There were reports that sympathy cards, in particular, were sold out quickly in the supermarket and other “essential” retail outlets that were still operating; but that surge essentially only offset a huge drop in purchases of wedding cards because the pandemic prompted the postponement of so many nuptials.
And in March, Hallmark launched an online giveaway of two million paper cards, with the intent of connecting loved ones amid the coronavirus crisis; it was so successful, with all the cards being claimed within a week, that the company quickly added the giveaway of another two million cards.
But the long-term trends remain unpromising for greeting cards. And while a re-opening of the U.S. economy and a return to “normal” may be welcomed by most businesses, that won’t be the case for the makers of greeting cards.